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Pyramid Schemes and Pension Plans

October 4, 2014
borrowing for infrastructure, debt funding, economy, innovation, Leadership, local government, planning, politics, Responsibility, Revenues, sanitary sewer, sustainability, Uncategorized, utilities, Water Funding
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A Ponzi scheme is an illegal program whereby investors are promised big return son investments in a short period of time, and where the underlying basis for this return is deliberately mis-stated.  We continually find people who perpetrate Ponzi schemes and when they are finally caught, they get put in jail.  For those unsure, a Ponzi scheme is defined as a scheme where the scheme operator says they will pay a high return to its investors from their original investment, but instead uses money from new capital paid to the operator by new investors rather than from profit earned by the operator.  Hence it is a flow through of money from people putting money in to people who are getting out.  To get returns on the investments for the earlier investors, the pool of new people must increase with time, so that there are always more people paying in that there were previously.  It that does not occur, then we have a problem.

What is a retirement system?  A retirement system is a form of deferred compensation used to attract and keep workers, by deferring a portion of their pay 10, 20 30 or 40 years from now.  It is part of the compensation to the employee.  With a retirement system, people pay into a program, where their money is invested.  A retirement system tends to rely on the fact that the number of people paying in increases exponentially so that the actual invested dollars are never touched, instead the new proceeds exceed the monies paid out.  For a pension, plan it assumes your invested dollars remain invested and profitable, and that the revenues from the new people in the system, exceed the monies paid to retirees.  What is the difference?  Well, the retirement system actually supposedly has assets while Ponzi scheme does not.  Otherwise, the systems work similarly – dollars paid in generally go out to others, and there is an assumption that the number or payees increases exponentially (a percentage every year).

So what happens to a pension plan when the number of employees decreases from 6.7 million to 4.4 million over 40 years?  Would you expect there to be a pension plan problem?  And if so why?  And who is at fault?  That is exactly what has happened to federal government employees since 1967.  And many states have seen reductions in the last 20 years as well.  So it is any wonder why these pension systems might be at risk?  The push to privatize services ensures that the basic assumption that the number of payees in a pension plan increases exponentially will be violated, which makes the pension plan vulnerable.  And ho is at fault.  I would suggest the people pushing privatization, who look only at short term consequences as opposed to long-term impacts.  Perhaps this needs to be part of any such discussion going forward.  Just a thought…

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Post Recession Good News

September 29, 2014
finance, funding, Leadership, local government, management, planning, politics, Responsibility, Revenues, sanitary sewer, Uncategorized, utilities, Water Funding
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The National League of Cities reports that nearly ¾ of municipalities are better off in2013 than they were in 2012.  In Broward County, over half the cities actually have more revenue in 2013 than they did in 2006.  Property values are up in 72% of Counties, and real estate activity was high in 2012 and 2013, although it has slowed in 2014.   Nearly 60% of the municipalities were not projected deferral of capital improvements, although 1/3 expect to reduce maintenance and 40% to defer capital.  The biggest challenge cities identified was street condition (23%, followed by sewer, stormwater and water although these were all under 16% which is a bit disappointing given the condition of much of this infrastructure).  Money remained their biggest challenge.  Total local government budgets are $3 trillion, and the bond market Is a robust $3.7 trillion.  New construction for local water, sewer and stormwater infrastructure is expected to reach $750 billion in 2014, with 3.2 and 4.8 billion respectively for water and sanitary sewer.

Pensions are the biggest liability and one that is critical for many local entities with their own pension plans (like Detroit).  Many others have or will migrate to a state plan, or were already part of a state plan.  Having a large pool off employees decreases risk to the pension plan and increased revenues (and future outlays).  Pension plans or Ponzi schemes?  Now that is the question….

DECREASING WATER DEMANDS VS INFRASTRUCTURE NEEDS

September 24, 2014
Banking industry, borrowing for infrastructure, Congress, contractors, debt funding, economy, engineering, finance, funding, growth, infrastructure, Leadership, local government, planning, politics, Reserve Funding, Risk, sanitary sewer, Uncategorized, Water Funding, water sewer management
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Earlier this year the Journal for AWWA had several articles about water use and infrastructure needs.  One of the major concerns that has arisen in older communities, especially in the Rust Belt and the West is that demands per person have decreased.  There are a number of reasons for this –the 1992 Energy Policy Act changes to plumbing codes that implemented low flush fixtures, the realization in the west that water supplies are finite and conservation is cheaper than new supplies, a decline in population, deindustrialization, and climate induced needs.  But all add up to the result that total water use has not really changed over the past 30 years and in many locales, water sales may have decreased.  Water utilities rely on water sales for revenues so any decrease in sales must be met with an increase in cost.  Price elasticity suggests the increase will be met with another decrease in sales, etc.  It is a difficult circle to deal with.  So less water, whether through deliberate water conservation or other means, creates a water revenue dilemma for utilities.  A concern about conserving to much and eliminating slack in the system also results.

Less water means less money for infrastructure.  Communities do not see a need for new infrastructure because there are fewer new people to serve.  Replacing old infrastructure has always been a more difficult sell because “I already have service, why should I be paying for more service” is a common cry, unless you are in my neighborhood where the water pipes keep breaking and we are begging the City to install new lines (they are on my street J)  Educating customers about the water (and sewer) system are needed to help resident understand the impacts, and risk they face as infrastructure ages.  They also want to understand that the solutions are “permanent” meaning that in 5 or 10 years we won’t be back to do more work.  Elected officials and projected elected officials (the tough one) should be engaged in this discussion because they should all be on the same page in selling the ideas to the public.  And the needs are big.  We are looking at $1 trillion just for water line replacement by 2050 and that is probably a low number(2010 dollars).  The biggest needs are in the south where infrastructure will start hitting its expected life.  The south want west will also be looking for about $700 billion in growth needs as well.  All this will cause a need for higher rates, especially with ¼ less low interest SRF funds avaialalbe this year from Congress.

Water = Civilization

February 4, 2014
engineering, infrastructure, innovation, Leadership, management, planning, sanitary sewer, sustainability, water supplies
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A number of years ago I had the pleasure of speaking with archeaologist Bryan Fagan for an hour or so before a presentation he gave at a conference.   Dr. Fagan is a modern-day Indiana Jones, who has been all over the world studying ancient ruins.  Dr. Fagan expressed his career as “50 years of studying drainage ditches,” but with studying drainage ditches he could provide you with the rise and fall of civilizations through history.  His book Elixir outlines a number of these civilizations:  Egyptian, Babylonia, Southeast Asia, and even the American West.  His findings were that the civilization expended as far as infrastructure could be constructed to allow water to flow to where it was needed, whether that was Alexandria or Ur.  Later civilizations expanded and developed as technology allowed water to flow further.  Rome demonstrated that water could be moved with more than ditches, which would have been a severe limitation for Rome and other civilizations based in dry areas with topography.  The Romans constructed extensive tunnels and aqueducts to supply Rome with water from mountains to the east and north. A recent article noted that we probably know about 20% of the Roman tunnel system as we keep discovering more of it each year – tunnels lost in the Dark Ages after the fall of Rome.  Dr. Fagan notes that it was access to water that allowed human civilizations to develop and evolve.  It is why a number of engineering organizations like Water for People and Engineers Without Borders focus their efforts on providing access to clean water to people in Third World countries.  It is their only way to get to the modern world.  All other infrastructure:  roads, major buildings, etc., result from the access to clean water that allows people to be healthy and productive.

So if civilization rises and falls with access to water, why is it so hard to get public officials to fund water supply and rehabilitation projects?  We talk of an infrastructure crisis in the United States because our average water and sewer infrastructure systems are working on 50 years old and deterioration is evident.  We have many mid-western communities with water, but no customers to pay for deteriorating infrastructure (Detroit), and southeastern utilities that have lost factories that supported the bulk of their utility, and insufficient growth in the customer base to deal with operations and maintenance.  As a result, outages and breaks occur more frequently, costing more money to repair, but under the auspices of maintaining rates, the revenues do not increase to support the needed repairs. 

At least the southeast has surface supplies, albeit perhaps limited, which constrains growth (Atlanta), but our fastest growth often occurs in areas we know have limited precipitation, like a lot of the American West.  Yet somehow we expect groundwater sources that do not recharge locally, to sustain the community indefinitely without disruption – ignoring the fact that history tells us communities cease to function when water supplies are exhausted.  USGS identified many areas that have long-term permanent declines in aquifers as a result of pumpage for agricultural and community uses.  No one raises the question about the aquifer levels – permits get issued, but little data is gathered and very limited plans are available in most places to deal with the declines.  And no one raises a question about aquifer levels because stopping growth to deal with water supplies is not in conformance with the desire to grow, which is required to support additional services demanded by the community. 

No one questions how to secure the water either, much of which has been “created” by federal tax dollars spend over 50 years ago during the era of great dam building (1920-1960).  However, as these systems and populations age, the concern about costs will continue to engender discussion.  And hand wringing.  Water costs money.  Water creates civilization and sustains it.  When we take it for granted, it becomes all too easy to fall behind the proverbial “eight-ball,” and the system crashes.  It is a testament to the utility personnel – the managers, engineers and operators – that these systems continue to operate as they do.  But bailing wire and duct tape only go so far.  We need to develop a frank discussion about the need to infuse funds – local, federal, state and private – into addressing our infrastructure needs.  The dialog needs to commence sooner, as opposed to after failure. 

SUSTAINABILITY OF UTILITIES – PART 2

October 11, 2013
Environment, finance, funding, infrastructure, Leadership, local government, management, planning, politics, Risk Management, sanitary sewer, sustainability, Uncategorized, water sewer management
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SUSTAINABILITY OF UTILITIES – PART 2

Let’s take a look at some scenarios. Let’s assume you are a utility that serves 20,000 people (8000 customers), with 60 miles of water pipe, 60 miles of sewer pipe, 17 lift stations, and a water and wastewater plant.  Replacing this infrastructure might be valued at $90 million for pipe, $35 million for treatment plants, water supply and pumping equipment (current day dollars).  Let’s also assume that their annual budget is $11 million and the typical demands are 3 MGD yielding a monthly bill of $115/mo (water and sewer).

Let’s make some general assumptions like that the pipe infrastructure might last 100 years, but clearly the treatment and mechanical parts would mot.  They would need ongoing maintenance and replacement.  50 years is probably too long, but let’s go with it.  If the overall costs increase at 3% per year and money is set aside for repair and replacement. The utility will see fairly steady rates if the customer base grows 2-3% per year.  Ten years out, the budget will be $16 million.  Now for the scenarios.

If the customer base has grown at 3% per year, the customers will increase to almost 27,000.  More of an issue is what happens if that increase in demand (from 3 to over 3.4 MGD) needs to come from a new water source and requires new capacity.  Many utilities will use impact fees to offset this cost to current customers so as not to adversely impact current customers too severely .That’s the current assumption.  The result looks like this at 10 and 20 years:

 

Component

  

Value today

10 years

20 years

Customers

  

20000

26878

36122

 

Accounts

  

8000

10751

14449

 

Water  Pipe

60 mi

 $   45,000,000

 $     98,509,418

 $215,646,786

Sewer Pipe

60 mi

 $   45,000,000

 $     98,509,418

 $215,646,786

Treatment Plants and Pumping

3 MGD

 $   35,000,000

 $     76,618,436

 $167,725,278

Operations budget

  

 $     9,000,000

 $     16,255,001

 $  29,358,340

Capital Budget

  

 $     1,600,000

 $       3,502,557

 $    7,667,441

Debt

  

 $        400,000

 $         400,000

 $      400,000

Monthly Amount

  

 $              115

 $                156

 $             216

Increase per year

    

5%

5%

 
         

 

Assume 1% of pipe Replacement Costs +2% Plant

    

 

Assume operating budget inc 3%/yr but construction increases 5%/yr

  

 
                     

 

But what if the new treatment and supply are 50% more costly and impact fees assume the lower investment (typical)?  The cost for the budget and for the infrastructure replacement increases (with the delta from debt).  Cost are 50% higher:

 

Component

  

Value today

10 years

20 years

Customers

  

20000

26878

36122

Accounts

  

8000

10751

14449

Water  Pipe

60 mi

 $   45,000,000

 $     98,509,418

 $215,646,786

Sewer Pipe

60 mi

 $   45,000,000

 $     98,509,418

 $215,646,786

Treatment Plants and Pumping

3 MGD

 $   35,000,000

 $     92,289,117

 $202,029,937

Operations budget

  

 $     9,000,000

 $     23,731,487

 $  42,861,706

Capital Budget

  

 $     1,600,000

 $       3,815,971

 $    8,353,534

Debt

  

 $        400,000

 $       1,325,000

 $    2,825,000

Monthly Amount

  

 $              115

 $                224

 $             312

Increase per year

    

8%

7%

 

The normal assumptions are that growth will continue, but what if it does not?

 

What can be gleaned as a result of a non-growth or net decrease scenario?  How does sustainability get affected?  Let’s look at the no growth scenario.  In this light, rates will need to increase at least 5% per year to insure that the utility remains rate neutral.  If there is significant deferred maintenance, which is typical of may utilities, that cost will be added to the bill.  There are examples of utilities in Florida who finally caught up with deferred obligations which doubled their customers’ bill.  This scenario is doable, but the only real assumption changes that can be made are related to the lack of growth.  Deferring maintenance will once exacerbate the problem as there is not guarantee that growth will return.  Rate neutrality becomes a public relations issue, but not insurmountable.

 

Component

  

Value today

10 years

20 years

 

Customers

  

20000

20000

20000

Accounts

  

8000

8000

8000

Water  Pipe

60 mi

 $   45,000,000

 $     73,300,258

 $119,398,397

Sewer Pipe

60 mi

 $   45,000,000

 $     73,300,258

 $119,398,397

Treatment Plants and Pumping

3 MGD

 $   35,000,000

 $     57,011,312

 $  92,865,420

Operations budget

  

 $     9,000,000

 $     12,095,247

 $  16,255,001

Capital Budget

  

 $     1,600,000

 $       2,606,231

 $    4,245,276

Debt

  

 $        400,000

 $         400,000

 $      400,000

Monthly Amount

  

 $              115

 $                157

 $             218

Increase per year

    

5%

5%
               

Now let’s look at the decline issue.  If the population decreases by 25% over the ten year horizon, what does this say?  The costs will remain relatively constant, but the number of customers and demands for water will drive the rates up significantly. In ten years the rates could double in a community that is likely economically disadvantaged.  The higher rates may begin to discourage economic development, rate neutrality exacerbate the problem and may increase in costs for regulatory or deferred maintenance obligation becomes a significant issue:

 

Component

  

Value today

10 years

20 years

Customers

  

20000

16341

13352

 

Accounts

  

8000

6537

5341

 

Water  Pipe

60 mi

 $   45,000,000

 $     73,300,258

 $119,398,397

 

Sewer Pipe

60 mi

 $   45,000,000

 $     73,300,258

 $119,398,397

 

Treatment Plants and Pumping

3 MGD

 $   35,000,000

 $     57,011,312

 $  92,865,420

 

Operations budget

  

 $     9,000,000

 $     12,095,247

 $  16,255,001

 

Capital Budget

  

 $     1,600,000

 $       2,606,231

 $    4,245,276

 

Debt

  

 $        400,000

 $         400,000

 $      400,000

 

Monthly Amount

  

 $              115

 $                193

 $             326

 
     

7%

7%

 
         

 

Assume 1% of pipe Replacement Costs +2% Plant

    

 

Assume operating budget inc 3%/yr but construction increases 5%/yr

  

 
                         

 What can we glean from this?  Interestingly the failure to accumulate costs for growth, and the declining rate base end up with similar monthly costs.  Only by the no growth and collecting appropriate impact fees will costs be controlled, and even in that case, costs will double every 20 years or less.  The reality is that the failure to follow proper revenue collection protocols will severely limit the utility in future years.  High capital costs impact rates significantly.  Leaving it to some future commissioner to raise the rates is unfair to both the future decision-makers and customers.  It does not make you a leader either. 

WATCH WHAT YOU FLUSH

September 20, 2013
engineering, finance, sanitary sewer, toilet flushing, Uncategorized, water sewer management
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I love stories about sewage in print.  As a water/wastewater guy, it is amusing to see sewer stories in the local papers and national news when they are about the “oddities” of operations.  One recent article talked about the impact of “flushable items” that should not go down the toilet.  “Flushable” wipes was the offender this time, but past discussion involved tampons, diapers and paper towels.  The reality is that NONE of these items should ever go down the toilet.  Those paper toilet seat covers are questionable as well.  Let’s see why. 

Sewer agencies have a very different view of what is flushable that tampon manufacturers, diaper manufacturers, paper towel and now flushable wipe makers.  Sewer agencies are responsible to insure that waste moves down the gravity pipes and through the lift station pumps without creating backups in the system.  The majority of material in a sewer system is water.  Followed by chopped up solids.  The design of the toilet involved two separate concepts.  One is simply creating the opportunity for a syphon to move waste when flushed but holding water when not.  It is a gravity principle based on partial pressures.  Simple stuff.  But toilets also tend to “chop up” material when the flushing action occurs.  The flush is violent and thin toilet paper and the soft solids in the toilet are easily shredded and blended into the water.  Think about your blender.  Soft stuff gets chopped up.  Enough mixing, it is all liquid.  As a result there is very limited opportunity for either thin toilet paper or most solids to plug up a toilet. 

But people don’t like thin toilet paper.  So we have manufactures making toilet paper with cotton fibers in it to make the paper soft.  And people like the “high quality” paper towels that upscale restaurants use.  Unfortunately too many people use those high end paper towels on the toilet seat, so down they go.  Wipes are reinforced paper also.  Fibers make them strong enough to, well wipe.  Tampons are notorious as absorbant fibers.  The key in each case is the fibers.  Fibers are not chopped up during a flush because the toilet flush is not designed to shed cloth.  As a result two things happen.  First, the fibers then to stay together as a mass.  Grease and other materials in the sewer system will stick to eh fibers making an even larger glob of material.  A recent YouTube photos showed a 15 ton grease ball in a large sewer system.  Grease and fiberous materials in the sewer system – you don’t want that to plug up your interceptor.

The other problem is lift stations.  The pumps at lift stations are designed to pass a 2.5 in ball, but not a bunch of strings.  As a result the fibers get stretched out, and wind around the pump impeller rendering it useless.  Or the material may mat in the impeller preventing the pump from pumping water.  One of the most common lift station problems is fiberous material winding around impeller shafts that burn out pumps.  Pumps cost thousands of dollars to repair or replace, so this is money from the ratepayers’ pockets.  One of my clients had the restaurant problem.  The lift station impellers would completely clog every 3 days.  The lift station would nearly overflow before the pumps were removed, the guys would open up the pump, and dig out the material.  Obviously fiberous paper and there were only two connections to the lift station.  The City ended up installing a $160,000 grinder system to grind up this material because the restaurant was unwilling to change their practice.  The major offender was women using the paper towels as seat covers.  The lines inside were a mess as well. 

The moral of the story is that toilet paper, water and body waste goes down the sewer.  Not napkins, feminine hygiene products, baby wipes or any fiberous paper material that feels soft, but won’t deteriorate, regardless what the manufacturer claims on the box.  These material do not degrade, the only create costly repairs, inconvenient and costly backups and a host of other problems for downstream users and the utility.  Put this material in the proper trash can. 

And see where else can you talk about this stuff, except when talking about sewage?

Planning for Change (like sea level rise)

May 1, 2013
Banking industry, Climate, Development loans, Environment, groundwater, infrastructure, Insurance, Leadership, planning, sanitary sewer, sea level rise, stormwater, sustainability, Uncategorized
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After my last post, I was asked about sea level rise and how to get started with the issue in a very “red” area as it was characterized.  I have come to the conclusion that the insurance industry will make sea level rise real for politicians in those places where it is impermissible for bureaucrats to discuss it.  Here’s why.  Say you have a house in a low lying area that is vulnerable to sea level rise and/or storm surge.  One is permanent, the other temporal, but in both cases are potentially catastrophic if you live in this house.  You bought the house, got a loan for 80 or 90% of its value and then got insurance for it.  Now the insurance is there to insure that if your house gets swept away or damaged, there will be enough money to pay off your loan.  That’ s what many people miss.  Insurance is for the bank, no you, which is why your loan documents require that you get and hold insurance while you have the house.  After your loan is paid off, there is no such requirement.

Now let’s say we are out 20 years.   You have enjoyed your house but have decided to sell it.  Now the banks will value it and are willing to loan say 80% of its value.  They of course assume that the house will increase in value with time so even if you make no improvements, if they have to foreclose on it they will get their money back (a major part of the problem with the financial crisis of 2008 was they banks could not get their money out of the properties).   Even if it doesn’t, as your loan is paid down, their risk decreases.   The loan documents require that you get insurance to cover your costs.

So far so good, but what happens when the insurers will not give you insurance for the full value of the property?  In Florida the State creates Citizen’s to deal with the fact that private, commercial insurers saw too much risk in coastal areas and refused to issue policies.  Now the State and Citizen’s have the risk.  Fine, but that isn’t dealing with the same issue – if the insurer think the value of the property will decrease, or the risk increases a lot, they will not issue policies. Or they will revise policies to say they will pay once – but will not insure you for rebuilding.  You may think this will not happen, but Citizen’s is already discussing this option.  Hence if you lose your house, they will pay you (so you can pay the bank, and then you are on your own.  Now the bank may be willing to offer you a distressed property as an options (Welcome to Detroit), but that won’t be in the same risk zone.

Take this further, let’s say Citizen’s for example says we will pay full value if you lose the house but will not insure a rebuild?  That means they probably will not give insurance to the guy who wants to buy our house in 20 years.  How much is your house worth now?  Probably nothing, which means now the bank will be looking at your insurance coverage and say – whoa – if the house is not worth anything on a resale, that means they may not get paid when you sell your house if you sell if before it is paid off (the norm)!!  That is an unacceptable risk, and they need a solution.  Of course if your house suddenly has no value, it means local governments get no revenue for taxes (good for you, but bad for providing essential services like storm water.  You may not believe this discussion is happening, but it is.

So here’s what I think happens.  I think the banks figure this out and start looking at vulnerability as a part of loans.  I think they start thinking about what the value in 20 or 30 years might be and if they can get their loan monies back out of property.  That will slow property values.  I think the insurance industry does the same, and working with banks will further set the prices acceptable for vulnerable property.  They are not good investments. If you own such property, you may get insurance in the short-term, but long-term your house value may decrease.  At some point, your house will have no resale value, unless……

BUT there iis a big caveat to all this.  Coastal areas are high value markets.  Lots of activity and lots of investment opportunities.  It all depends on what is being done to protect those properties, and depending on the federal governments to bail out private property is unrealistic.  It is a local issues, so I also think the banks and insurance industry will start looking at what local governments are doing to protect investments in private property.  Do they have a sea level rise adaptation plan?  Are the storm water systems updated/upgrades/maintained?  Are roads, water supplies and sewer systems capable of functioning under the changed condition?   Is there a 50 or 100 year vision on how the community adapt to nature?  If yes, there is comfort that investments are protected.  If everyone’s head is buried in denial…..Detroit’s calling.  U-haul anyone?

PS  No disrespect to Detroit, my father’s hometown and the home to many of my current and departed family.  For those who do not know, Detroit is high, has access to lots of water, sewer, roads, power and lots of land at reasonable cost, along with a jobs and manufacturing history.  Perfect opportunity, one not lost on our ancestors.

When do we get serious about sea level rise?

March 18, 2013
Banking industry, Climate, Development loans, Environment, finance, groundwater, infrastructure, Insurance, Leadership, management, planning, sanitary sewer, sea level rise, stormwater, sustainability, Tidal flooding, Uncategorized, water sewer management, water supplies
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Based on my last blog, his inquiry came to me.  And I think I actually have an answer:  when bakers and insurance companies decide there is real exposure.  Let’s see why it will take these agencies.  There is very little chance, regardless of good faith efforts, significant expertise, or conscientious bureaucrats to stop growth and development.  The lobby is simply too strong and local officials are looking for ways to raise more revenues.  Development is the easiest way to increase your tax base.  As long as there are no limits placed on develop-ability of properties (and I don’t mean like zoning or concurrency), development will continue.  But let’s see how this plays out.  Say you are in an area that is likely to have the street inundated permanently with water as a result of sea level rise (it could be inland groundwater, not just coastal saltwater).  For a time public works infrastructure can deal with the problem, but ultimately the roadways will not be able to be cleared.  Or say you are located on the coast, and repeated storm events have damaged property.  In both cases the insurance companies will do one of three things:  Refuse to insure the property, insure the property (existing) only for replacement value (i.e. you get the value to replace) but no ability to get replacement insurance, or the premiums will be ridiculous.  We partially have this issue in Florida right now.  Citizen’s is the major insurer.  It’s an insurance pool created by the state to deal with the fact that along the coast, you cannot get commercial insurance.  So Citizens steps in.  The state has limited premiums, and while able to meet its obligations, in a catastrophic storm would be underfunded (of course in theory is should have paid out very little since 2006 since no major hurricanes have hit the state, but that’s another story). 

As the risk increases, Citizens and FEMA, the federal insurer, have a decision to make.  Rebuilding where repeated impacts are likely to happen is a poor use of resources and unlikely to continue.  Beaches and barrier islands will be altered as a result.  The need will be to move people out of these areas, so the option above that will be selected will be to pay to replace (move inland or somewhere else).  Then the banks will sit up.  The banks will see that the value of these properties will not increase.  In fact they will decline almost immediately if the insurance agencies say we pay only to relocate.  That means that if the borrowers refuse to pay, the bank may not be able to get its money out of the deal on a resale.  We have seen the impact on banks from the loss of property values as a result of bad loans.  We are unlikely to see banks engage in similar risks in the future and unlikely to see the federal insurers (Fannie Mae, Freddie Mac) or commercial re-insurers like AIG be willing to underwrite these risks.   So where insurance is restricted, borrowing will be limited and borrowing time reduced.  That will have a drastic impact on development.  The question is what local officials will do about it?

There are options to adapt to sea level rise, and both banking and insurance industries will be paying close attention in future years.  Local agencies will need a sea level rise adaptation plan, including policies restricting development, a plan to adapt to changing sea and ground water levels including pumping systems to create soil storage capacity, moving water and sewer systems, abandoning roadways, and the like, and hardening vulnerable treatment plants.  Few local agencies have these plans in place.  Many local officials along the Gulf states refuse to acknowledge the risk.  What does that say about their prospects?  Those who plan ahead will benefit.  Southeast Florid a is one of those regions that is planning, but it is slow process and we are only in the early stages.

Sea Level Rise may Impact low lying areas faster than we think

February 23, 2013
Climate, communciations, Environment, groundwater, infrastructure, Leadership, Marketing water, planning, power demands, power-water nexus, sanitary sewer, sea level rise, stormwater, sustainability, Tidal flooding, Uncategorized, water sewer management
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One of the major issues involved with climate changes is sea level rise. Florida has experienced 9 inches of sea level rise since 1900. Projections are 2-3 feet by 2100, perhaps more. Modeling done by my students and I at FAU has demonstrated that in low lying areas, sea level rise will also impact groundwater levels, and accelerate inland flooding. The graphs above compare the traditional bathtub model used by most investigators and our adjusted for groundwater level model. You wee added inland areas of flooding which complicated storm water flooding issues much faster than sea level rise might indicate.

Leadership with Water-Energy Nexus?

January 26, 2013
Climate, communciations, Environment, finance, groundwater, infiltration, infrastructure, Leadership, management, power demands, power-water nexus, sanitary sewer, sustainability, water sewer management, water supplies
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In our prior blog discussions the theme has been leadership.  Vision is needed from leaders.  In the water industry that vision has to do with sustainability in light of competing interests for water supplies, completion for funds, maintaining infrastructure and communicating the importance of water to customers.  The need to fully to optimize management of water resources has been identified.  The argument goes like this.  Changes to the terrestrial surface decrease available recharge to groundwater and increase runoff.  Urbanization increases runoff due to imperviousness from buildings, parking lots, and roads and highways that replace forest or grassland cover, leading to runoff at a faster rate (flooding) and the inability to capture the water as easily.  In rural areas, increased evapotranspiration (ET) is observed in areas with large-scale irrigation, which lowers runoff and alters regional precipitation patterns. At the same time there are four competing sectors for water:  agriculture (40% in the US), power (39% in the US), urban uses (12.7%) and other.  Note the ecosystem is not considered.

New water supplies often have lesser quality than existing supplies, simply because users try to pick the best water that minimizes treatment requirements. But where water supplies and/or water quality is limited, energy demands rise, often to treat that water as well as serve new customers. For many non-industrial communities, the local water and wastewater treatment facilities are among the largest power users in a community.  Confounding the situation is trying to site communities where there is not water because the power industry needs water and the residents will need water.  It is a viscous cycle.  When you have limited water supplies, that means your development should be limited.  Your population and commercial growth cannot exceed the carrying capacity of the water supply, or eventually, you will run out.  Drawing water from more distant place can work for a time, but what is the long-term impact.  Remember the Colorado River no longer meets the ocean.  Likewise the Rio Grande is a trickle when it hits the Gulf of Mexico  As engineers, we can be pretty creative in coming up with ways to transfer water, but few ask if it is a good idea.

Likewise we can come up with solutions to treat water that otherwise could not be drunk, but, that may not always be the best of ideas. Adding to the challenge is that planning by drinking water, wastewater, and electric utilities occurs separately and is not integrated. Both sectors need to manage supplies for changes in demands throughout the year, but because they are planned for and managed separately, their production and use are often at the expense of the natural environment.  Conflicts will inevitably occur because separate planning occurs (for a multitude of reasons, including tradition, regulatory limitations, ease, location, limited organizational resources, governance structure, and mandated requirements). However, as demands for limited water resources continue to grow in places that are water limited, and as pressures on financial resources increase, there are benefits and synergies that can be realized from integrated planning for both water and electric utilities and for their respective stakeholders and communities. The link between energy and water is important – water efficiency can provide a large savings for consumers and the utility.   As a result, there is a need to move toward long-term, integrated processes, in which these resources are recognized as all being interconnected .  Only then can the challenges to fully to optimize management of water resources for all purposes be identified.

Anybody have any good examples out there?

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